Two countries, Rhodia and Rubium, have identical production functions in the form Y = A × K^0.25 × H^0.75, where Y denotes total output, A denotes the level of technology, K denotes the physical capital stock, and H denotes the efficiency units of production. Both countries have the same amount of physical capital stock and use the same technology. However, the total efficiency units of labor in Rhodia is higher than that in Rubium. Which of the following is likely to be true in this case? A) The GDP of Rhodia is higher than that of Rubium. B) The GDP of Rubium is higher than that of Rhodia. C) The Human Development Index of Rhodia is lower than that of Rubium. D) The poverty rate in Rhodia is likely to be higher than that in Rubium.

Question

Quizplus · Accepted Answer

Given the production function and the fact that Rhodia has more efficiency units of labor (H) than Rubium, while all other factors (A and K) are the same, Rhodia is likely to have a higher total output or GDP. The production function shows that both capital and labor efficiency contribute to output, and higher efficiency units of labor in Rhodia would lead to higher GDP compared to Rubium.

Two Countries, Rhodia and Rubium, Have Identical Production Functions in the Form